Can housing investments deliver more than shelter?
A new report by RBC Economics suggests Canada’s housing sector is facing intensified strain amid a backdrop of economic uncertainty, subdued growth, and resource-heavy government spending. The report, Canada’s Path Ahead: Six Economic Challenges Facing the New Federal Government, outlines a series of interlinked fiscal and structural issues, casting a spotlight on housing affordability and its broader implications for economic productivity.
Although the report does not forecast a technical recession, it warns that economic conditions in 2025 will likely “feel very much like one,” with stagnant growth and regional job losses, particularly in Ontario and Quebec. This stagnant environment is expected to disproportionately affect low- and middle-income households—groups already grappling with rising costs, diminished savings, and lagging wages.
Fiscal policy takes centre stage
Housing, a core element of this affordability crisis, is under increased scrutiny as federal and provincial policymakers face tough decisions on how to allocate limited fiscal space. “There is a bunch of significant government spending hovering in the near and medium term, including on housing,” the report states, warning that such investments, if not made more growth-positive, could divert essential economic resources from more productive sectors.
Despite record-high public investments in housing, RBC’s analysis points to concerns about the sector’s low labour productivity. In periods of economic slack, such spending may absorb idle capacity. However, as the economy stabilizes, these same investments risk “crowding out” more dynamic areas of growth, potentially exacerbating Canada’s already declining productivity trend.
Canada’s potential growth—driven by labour participation and productivity—is now expected to fall below 1%, a figure RBC calls “record-low structural weakness.” The report echoes warnings made by Bank of Canada leadership that the country is at a “break the glass” moment, requiring urgent reforms not only in immigration and workforce policy, but also in streamlining housing development and other major infrastructure projects.
Crucially, RBC contends that the most effective solutions may lie beyond monetary policy. While the Bank of Canada may implement targeted interest rate cuts, the report argues that “fiscal policy at federal and provincial levels are a better prescription” for current and future challenges. This suggests a call for more tailored housing initiatives—ones that balance affordability with broader economic benefit.
As the new federal government settles in, it faces the delicate task of rebalancing social and economic investments. RBC’s economists said past spending patterns, including significant housing expenditures, have been largely deficit-financed. With debt servicing costs rising, future investments in housing must deliver more than just shelter—they must also contribute to long-term economic resilience.
What are your thoughts on the RBC’s recent outlook? Share your insights in the comments below.
